AEFS.L Regulatory News (AEFS)

Alcentra European Floating Rate Income Fund Limited

Market Commentary

The Alcentra European Floating Rate Income Fund (the "Fund) was up +0.54% (gross) for the month, ahead of the Credit Suisse Western European Leveraged Loan Index ("CS WELLI") (hedged to GBP) at +0.03% for the same period[1].

The marginally weaker market returns for the month were mainly driven by weakness in USD loans and lower margin loans in the Index, however the core market remained relatively robust. USD loans were weaker on the back of USD Loan Market fund out-flows (USD loans in the CS WELLI returned -0.49%)[2]. Lower margin loans also saw some weakness as Investors looked to reduce these names to make room for more attractively priced primary.

Despite continued challenging CLO market conditions due to pressure on the arbitrage, CLO issuance is now running ahead of last year with March issuance of €3.4bn, +36% up on the prior year. This leaves Q1 volumes at €6.9bn, +11% higher year on year[3]. This CLO issuance, coupled with a continued strong pipeline, has meant demand was again strong in the month.

European Loan issuance saw a strong recovery in March with €10.5bn of loans pricing, a +48% increase on the prior year. M&A driven volumes were up +42% on prior year, while refinancings were down -36%, so net issuance again grew[4]. Q1 volumes overall were down -42%, however this was versus a record quarterly issuance in the prior year, and the total issuance of €20.4bn in the quarter was broadly in-line with quarterly averages in recent years[5]. Issuance was supported by a jumbo deal for Power Solutions, as well as larger deals from Ceva, Colisee and Delachaux. For the month, the average new issue spread was 417bps at a price of 99.49, representing an attractive entry point for investors. The S&P forward pipeline has now increased to €10.5bn, demonstrating a continued positive outlook for issuance volumes[6].

The S&P default rate for the 12 months ending March remained at the record low level of 0.00% seen since January[7]. We do not expect default rates to remain at such low levels and would expect a return to a more normalised 1.5% - 2.0% rate. This is backed up by the S&P distress ratio (share of performing issuers trading below 80) which stood at 1.39% for March[8].

Overall the market remains disciplined, with single B margins holdings steady at c.400bps[9], while constructive discussions on documentation terms continues. Although the market for new CLOs remains tough, deals continue to get done and this should continue to drive support for European loans

Portfolio Manager's Commentary

The top performing credit was a specialist financial services business that was up +3.22% after it continued to benefit from better sentiment around the sector and positive results from peers. The second best performer was a software company that was up +2.80% after reporting solid results which were better than the market expected. Both of these businesses saw a recovery after weakness in prior months.

The worst performing credit was a technology services business that was -13.67% after seeing downward pressure on its loans on the back of weaker results and selling pressure in the name. The second weakest name was a healthcare business that was -5.72% after it reported weaker results due to higher integration costs, leading to higher than expected leverage.

For the month as a whole the Fund saw positive performance of +0.54%, ahead of the index at +0.03%[10]. As such, while two idiosyncratic positions saw weakness on specific credit news, they were more than offset by the positive contribution from other holdings.

ENDS

For further information please contact:

Alcentra Limited

Simon Perry +44 20 7367 5272

Factsheet

An accompanying factsheet which includes the information above as well as wider commentary on the investments made by the Fund can be found on the Fund's website www.aefrif.com.

Background Information

Alcentra European Floating Rate Income Fund Limited, a Guernsey Authorised Closed-Ended Collective Investment Scheme, regulated by the Guernsey Financial Services Commission and listed on the Main Market of the London Stock Exchange invests predominantly in senior secured loans and senior secured bonds issued by European corporates and targets returns (net of fees and expenses) of 7% to 10% per annum. The Fund targets a dividend yield of 5.5 pence per £1.00 issue price of the initial offering of shares in the Fund for the first full year of investment, paid quarterly.

Important Notices

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This report is aimed at existing investors in the fund and has not been approved by any competent regulatory authority.

The information contained in this document is given as at the date of its publication (unless otherwise marked) and is based on past performance. Past performance is not a guide to future performance and the value of investments and investment value can go down as well as up. The future performance of the Fund will depend on numerous factors which are subject to uncertainty. Including changes in market conditions and interest rates and exchange rates and in response to other economic, political or financial developments, investment return and principal value of your investment will fluctuate, so that when your investment is sold, the amount you receive could be less than what you originally invested. Past or current yields are not indicative of future yields.

This document does not contain any representations, does not constitute or form part of any solicitation of any offer to sell or invitation to purchase any securities of the Fund, nor shall it or any part of it or the fact of its distribution form the basis of or be relied upon in connection with any contract therefor, and does not constitute a recommendation regarding the securities of the Fund. Nothing in this document should be construed as a profit or dividend forecast.

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements include, without limitation, statements typically containing words such as "believes", "considers", "intends", "expects", "anticipates", "targets", "estimates", "will", "may", or "should" and words of similar import. The forward-looking statements are based on the beliefs, assumptions and expectations of future performance and market development of Alcentra Limited ("Alcentra"), taking into account information currently available and made as at the date of this document. These can change as a result of many possible events or factors, not all of which are known or within Alcentra's control. If a change occurs, the Fund's business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance. Alcentra qualifies any and all of the forward-looking statements by these cautionary factors. Please keep this cautionary note in mind while reading this document.

An investment in the Fund is suitable only for investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear losses (which may equal the whole amount invested) that may result from such an investment. An investment in the Fund should constitute part of a diversified investment portfolio. Accordingly, typical investors in the Fund are expected to be sophisticated and/or professional investors who understand the risks involved in investing in the Fund.

Alcentra gives no undertaking to provide recipients of this document with access to any additional information, or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent including in relation to any forward-looking statements. The distribution of this document shall not be deemed to be any form of commitment on the part of Alcentra to proceed with any transaction.

This document is issued by Alcentra Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and whose registered address is at 160 Queen Victoria Street, London, United Kingdom, EC4V 4LA.

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